North Sea operator Ithaca Energy has said the UK Government windfall tax “severely dampened” industry investment.
And it warned its own production will drop next year.
Aberdeen-based Ithaca highlighted “deferral or cancellation” of investment for its Greater Stella Area (GSA) assets, along with developments it is partnered on like TotalEnergies’ Elgin-Franklin and Repsol Sinopec’s Montrose-Arbroath fields.
The pace of investment on its pre-final investment decision (pre-FID) projects has also slowed, due to the energy profits levy (EPL), or windfall tax.
The energy profits levy continues to have a direct impact on investment in the UK North Sea.”
Gilad, Myerson, executive chairman, Ithaca Energy
UK North Sea-focused Ithaca – which posted first half results today – is a partner in two major untapped discoveries west of Shetland, Cambo and Rosebank.
The company said it was continuing to highlight to the Treasury the impact of fiscal uncertainty on its “ability to make critical decisions on large scale capital investments”.
Executive chairman Gilad Myerson added: “The energy profits levy continues to have a direct impact on investment in the UK North Sea and Ithaca Energy’s own investment programme across its diverse high-quality operated and non-operated asset base.”
Ithaca said it remained committed to the UK North Sea.
But the climate for new investment in the region is “severely dampened” it warned, adding: “It is clear that we, like the rest of the industry, will feel the impact of lower investment on our medium-term production outlook below previously guided levels.”
Ithaca’s 100% owned GSA is expected to produce 5,000 barrels fewer or less in 2024, with EPL-related investment decisions “driving the reduction”.
The company said it booked windfall tax charges totalling £177 million in the first six months of 2023.
Ithaca reports weaker profits and revenue
First half pre-tax profits came in at £197m, down from about £1.4 billion a year ago.
Revenue fell to £990m, from £1.06bn previously, which was partly due to lower commodity prices.
The firm highlighted adjusted net income of £200.1m for the latest period, up from about £185m a year ago.
It also hailed production of 75,755 barrels of oil equivalent (boe) per day over the first six months of 2023 – up 13% on 66,700 a year ago, mainly due to newly acquired assets. Output was 66% oil and 34%gas.
Production guidance for the full year was reaffirmed as 68-74,000boe per day.
London-listed Ithaca said it was continuing to work towards an FID “in the near-term” on the Equinor-operated Rosebank field.
Price floor mechanism deemed unlikely to come into play
A price floor introduced earlier this year could see the windfall tax scarpped if commodity prices hit $71.40 per barrel for oil and £0.54 per therm for gas in two consecutive quarters.
But on current projections analysts say it is unlikely prices will fall to those levels, meaning the “floor” will have no impact.
Ithaca said it had contributed to an ongoing review of the UK tax regime, and the company called for an updated EPL price floor which better reflects the market.
Speaking to analysts, Mr Myerson said: “What we need to understand from the government is what the long-term fiscal regime is going to be; it’s important to have stable policy in order to make long term decisions.”
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